Cyber cat bond “innovation premium” largely eroded: Gallagher Securities

As cyber catastrophe bonds continued to come to market in the fourth-quarter of 2025 one notable fact was that, aided by the weight of capital and investor interest, the cyber cat bonds placed appeared to come without so much, or perhaps any, of the innovation premium paid for the first glut of cyber ILS deals, Gallagher Securities execs have noted.

During the final quarter of 2025 we tracked $450 million of new cyber reinsurance limit placed through catastrophe bonds.

This came from the Beazley’s latest and largest $300 million PoleStar Re Ltd. (Series 2026-1) cyber cat bond, which priced with a meaningfully lower multiple-at-market than the re/insurer’s previous deals.

The remaining $150 million of cyber cat bond limit secured in the fourth-quarter was for sponsor Chubb, who in returning for its second cyber cat bond successfully placed and secured the first annual aggregate cyber cat bond coverage ever, through the East Lane Re VII Ltd. (Series 2026-1) deal.

Q4 2025 was actually the biggest single quarter of cyber cat bond issuance we’ve tracked in our Deal Directory so far, as the average issuance size increased.

Commenting on cyber cat bond market activity, Jason Bolding and William Dubinsky of Gallagher Securities, the broker-dealer and ILS arranger arm of reinsurance broker Gallagher Re, highlighted the notable pricing execution achieved for sponsors of new cyber catastrophe bond issues.

“Investor participation in cyber ILS has increased significantly, demonstrating increased confidence in the peril. The “innovation premium” tied to cyber ILS has disappeared.

“We anticipate this will drive greater demand from sponsors in the future,” the pair commented in Gallagher Re’s latest reinsurance renewals report.

Ian Newman, Global Head of Cyber and Jennifer Braney, Head of International Cyber at Gallagher Re further commented on developments in cyber insurance-linked securities in the same report.

The pair highlighted “more-than-adequate capacity” for cyber reinsurance renewals at January 1st 2026, helped in part by insurance-linked securities investors.

Reinsurance capacity for cyber risks has grown “significantly” in recent years, part of which has been driven by “improved access to cyber ILS support,” they explained.

As a result, they stated that, “The “innovation premium” that insurers have historically paid to access the cyber cat bond market is steadily eroding.”

When the first cyber catastrophe bonds came to market their spread multiples were considerably higher than property cat bonds at comparable expected loss levels.

The gap has certainly narrowed now, with the cyber cat bond deals of the fourth-quarter of 2025 pricing for a spread multiple-at-market that we’d estimate around 30% lower than the cyber ILS deals issued in 2024.

Perhaps more comparably, Beazley’s three 2024 PoleStar Re cyber cat bonds had an average expected loss of 1.15%, an average spread of 12.25% and so an average multiple of 10.71 times EL.

Beazley’s three tranches of the recent PoleStar 2026-1 cyber cat bond had an average EL of 1.39%, an average spread of 8.83% and so an average multiple-at-market of 6.84 times EL, so the basic multiples fell 36%.

Which again does imply the innovation premium eroding, although we do believe cyber cat bond pricing remains weighted higher than nat cat deals.

The multiples of cyber cat bonds remain meaningfully higher than for property catastrophe bond deals of similar expected loss levels, so there is certainly still a complexity and uncertainty premium still being applied.

The average multiple of the recent cyber cat bond issuances was 6.49 times expected loss, where as across the cat bond market Q4 2025 saw an average multiple-at-market of just 2.44 times EL.

Some of this will be due to the fact cyber risk remains less understood by and still new for fund managers and investors, while cyber risk models are still relatively new to investors, plus systemic cyber risk is a topic that can drive opposing views as to its potential to cause significant loss events.

But, for a still relatively new peril to the catastrophe bond market, the fact spread multiples appear to be compressing meaningfully already is positive for attracting new cyber cat bond sponsors over the coming years.

Perhaps most positive of all, is the fact Chubb’s recent cyber cat bond which is the first annual aggregate deal in the market, has priced with one of the lowest multiples of any cyber cat bond seen so far, which suggests we could see more sponsors looking for aggregate cyber reinsurance from the capital markets in future.

You can read about every cyber cat bond transaction, including the first private cat bond deals and the more recent 144A cyber cat bonds, by filtering our Deal Directory by peril to view only cyber cat bond transactions.